Korea Monetary Policy

Korea: Central Bank keeps rates unchanged but hints at rate cut

November 11, 2011

At its 11 November monetary policy meeting, the Bank of Korea (BoK) kept the Base Rate unchanged at 3.25%, a decision that was in line with market analysts' expectations. After tightening the policy reins in June, the BoK has now refrained from raising rates for four consecutive meetings. At the current 3.25%, however, the policy rate remains at its highest level since November 2008. In the accompanying statement, the BoK highlighted ?signs of sluggishness? in the performance of major economies. According to the Bank, the global outlook remains uncertain, amid downside risks stemming from the European debt crisis. Nevertheless, the Korean economy remained resilient and the BoK ?anticipates that the domestic economy will keep up its long-term trend of growth going forward.? Meanwhile, inflationary pressures continued to abate, with inflation dropping from 4.3% in September to 3.9% in October, falling inside the BoK target range of 3.0% 1.0 percentage points for the first time in ten months. The BoK ?expects the inflation rate to fluctuate at a high level for the time being given factors such as the public utility charge hikes and stubbornly high inflation expectations?. The BOK reiterated its intention ?to firmly anchor the basis for price stability?, but dropped the reference to "greater emphasis" on price stability. According to market analysts, the phrasing suggests a shift in the BoK's monetary policy towards a more accommodative stance, implying the possibility of a rate cut going forward amid concerns of a slowdown in the global economy

Industrial production in the mining, manufacturing, gas and electricity sectors decreased 6.0% in December compared to the same month last year, more than the revised 1.7% decrease in November (previously reported: -1.6% year-on-year).